2009-12-07

By Wang Zhonghong, Development Research Center of the State Council (DRC)

Research Report No 118, 2009

I. Practical and Strategic Importance of China's Development of Digital Television Industry

1. Huge market potential for China's digital television industry

At the end of 2008, China's digital television users totaled more than 60 million, accounting for about 15% of the country's total television users. In keeping with the country's goal to basically stop broadcasting analogue television by 2015, the digital television industry still has to cover about 85% of the television users. This huge market and pressing task constitute an enormous potential for the digital television industry to develop in a short time. Terminals and services alone can bring about nearly 2 trillion yuan in output value. China's digital television production is expected to create a 1.4-trillion-yuan sales market by 2015. Other products such as set-top boxes, universal serial buses, vehicle terminals and special service equipment will generate more than 100 billion yuan in sales revenue in the next six years. Contents, data services, value-added services and other items constitute another huge market. If each of China's 395 million television users pays 10 yuan for value-added services or pay contents, the market revenue will total nearly 300 million yuan in the next six years.

2. Accelerating development of digital television industry is an effective measure to rejuvenate information technology industry and boost economic growth

Digital television involves integrated circuits, consumer electronics, IT equipment, broadcasting equipment, technical services, multimedia contents, new media and other industries. It covers nearly all segments of the IT industry. The development of the digital television industry can not only bring China's television into the digital age but also push forward the development of the whole electronic information industry and the growth of the national economy. In 2008, the retail sales of liquid crystal television with digital features rose 43.9% over 2007, which was far higher than the 12.5% growth of the core business revenue of the whole electronic information industry. From January to May this year, the sales of the electronic information industry above the state-designated scale dropped 5.7 percentage points, but the sales of digital television rose 6.7% and became one of the few bright spots of the electronic information industry. As China's electronic information industry now faces a grave situation due to the impact of the international financial crisis, the development of the digital television industry undoubtedly can play important roles in spurring the domestic demand, rejuvenating the electronic information industry and driving economic growth.

3. Digital television is important information infrastructure concerning people's benefits and state security and stability

Television is a mass media that has the most frequent and closest contacts with the people's daily life. Investigations indicate that each day, the Chinese audience watch television for 2.54 hours and 89% of the residents contact television. The popularization of digital television will greatly enrich television contents and services and enhance the level of the people's spiritual and cultural life. In the meantime, digital television concerns state security and stability. In particular, it is the most reliable publicity channel for the state during major disasters or wartime. It can also play important roles in further developing information and publicity channels and in ensuring state security. Therefore, the governments in all countries exercise direct administration over the terrestrial digital television standards and their enforcement, because they are closely related to state security. It is expected that digital television as an important information infrastructure will assume growing strategic importance in China's economic and social development, in improving the people's life and in ensuring state security and stability.

II. Status Quo of China's Digital Television Industry and Difficulties for Further Development

1. Conditions are ripe for China to accelerate development of digital television industry in the near term

Currently, China has solid technical, organizational and industrial bases for developing digital television and is striving for a rapid development.

(1) Technical basis. Digital television is a mature technology in developed countries in Europe and America. The technology has also become growingly mature in China, which began to enforce in 2007 the completely proprietary digital terrestrial television standard (DTMB). So far, the standard has been adopted by 10 provinces, 27 cities and two special administrative regions for formal or trial broadcasting. Since 2007, the standard has been proven to be more advanced than the European and Japanese standards in the standard comparisons and tests in Cuba, Venezuela, Peru and other South American countries. The China multimedia mobile broadcasting standard (CMMB) targeted on handheld mobile terminals has been enforced on a trial basis in many cities. Besides, the State Administration of Radio, Television and Film has also independently developed the direct-to-home satellite transmission technology ABS-S targeted on the remote mountainous areas and the vast rural areas, and has successfully launched the Zhongxing-9 direct-broadcast satellite in June 2008. In the segment of set-top boxes and other terminals, China also has advanced technologies that have won international recognition and whose products are being sold to countries in Europe and America.

(2) Industrial basis. Currently, China's digital television industry boasts of a complete industrial chain. It comprises the chip design and manufacturing enterprises such as Haier Integrated Circuit, Shanghai High Definition, Beijing Lingxun, and Beijing Taihe Zhiheng, the television set manufacturing enterprises such as Changhong, Haier and TCL, the broadcast equipment manufacturing enterprises such as Beiguang Technologies and Tongfang Jiezhao, the set-top box manufacturing enterprises, the major television stations, and the radio and television operating companies. The six major brands, namely TCL, Skyworth, Kongka, Changhong, Hisense and Haier, now account for about 20% of the global demand for television sets. During the Beijing Olympic Games, China successfully conducted digital television trial broadcasting, laying a fine foundation for mass commercial application.

(3) Organizational basis. As early as in June 1999, China set up a leading group for digital television research, development and industrialization. The group, comprising the State Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, the State Administration of Radio, Television and Film, the State Quality and Quarantine Administration and many other government departments, has played key roles in setting, popularizing and industrializing China's digital television standards. In 2007, a total of 150 R&D institutions and enterprises, including Tsinghua University and Haier Group, formed the Zhongguancun Digital Television Industrial Union. With great strength in digital television standards, chips, terminal products, programs, launching and receiving display services and many key proprietary technologies, the union has become an intermediary organization in the technological innovation, standard popularization and industrial development of China's digital television industry.

2. Major problems to be solved

(1) Systemetic problems are prominent. Digital television is a special industry that has ideological attributes and involves diverse government functions such as equipment regulation, content regulation, operation regulation and user guidance and diverse government departments such as the State Development and Reform Commission, the Ministry of Industry and Information Technology, the State Administration of Radio, Television and Film and the State Standardization Administration. Due to cognitive and interest differences, departmental isolation and regional isolation have been prominent. Some departments use their own powers to restrain each other for self interests. As a result, no substantial progress has been made in integrating the three major networks. System problem has become the greatest bottleneck to the development of digital television. The state should strengthen unified leadership and rely on laws, regulations, organizational standards and industrial policies to effectively boost the development of the digital television industry.

(2) The Process of formulating and extending standards for terrestrial digital television has been slow. In the segment of terrestrial digital television, China has formulated and enforced the proprietary mandatory standard. The population and application of this standard will greatly enhance China's capacity for independent innovation in digital television so as to free China from the monopoly of foreign technologies, bring China's technological standards to the international market and increase its international competitiveness. But the mass popularization of the national standard and the formation of the supporting standards have been relatively slow, which has constrained the development of the digital television industry. In overseas popularization, for example, the Chinese standards have been proven by repeated tests to be more advanced than the standards of other countries. But some decision-makers in foreign countries still have doubts about these standards because they have not been mass popularized in China. In the meantime, nearly half of the supporting standards for digital television have not been formulated and accordingly the producers have no alternative but to wait for the promulgation of these standards, even though they already have production capacities.

(3) The industrial chain still has some weak links. Although China already has a mature industrial chain for digital television, it is still weak in the production of studio equipment, high-definition program production, meters and instruments, and liquid crystal flat television sets. In particular, its production technology for liquid crystal flat television sets is still lagging behind the advanced foreign enterprises. In the supply of digital television contents and especially the supply of cable digital television contents, the industry is still noted for insufficient competition, regional isolation, small industrial scale, low scale economy, insufficient impetus to operators in improving services, weak profitability, and low public recognition. In the segment of cable digital television, mutual networking is still impossible between different provinces and even between provinces and their subordinate cities and counties. Although there are more than 2,500 cable network companies nationwide, their total operational revenue is only more than 40 billion yuan. The industrial organizations are small in scale and scattered in location.